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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2018
Summary of Significant Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Stoneridge, Inc. and its wholly-owned and majority-owned subsidiaries (collectively, the “Company”). Intercompany transactions and balances have been eliminated in consolidation. The Company analyzes its ownership interests in accordance with Accounting Standards Codification (“ASC”) “Consolidations (Topic 810)” to determine whether they are a variable interest entity and, if so, whether the Company is the primary beneficiary. On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V. (“Orlaco”), an electronics business which designs, manufactures and sells camera-based vision systems, monitors and related products. The acquisition was accounted for as a business combination, and accordingly, the Company’s consolidated financial statements herein include the results of Orlaco from the date of acquisition. See Acquisitions in Note 2 below to the consolidated financial statements for additional details regarding the Orlaco acquisition. The Company had a 74% controlling interest in PST Eletrônica Ltda. (“PST”) from December 31, 2011 through May 15, 2017. On May 16, 2017, the Company acquired the remaining 26% noncontrolling interest in PST, which was accounted for as an equity transaction. As such, PST is now a wholly owned subsidiary. See Note 4 to the consolidated financial statements for additional details regarding the acquisition of PST’s noncontrolling interest. The Company’s investment in Minda Stoneridge Instruments Ltd. (“MSIL”) for the years ended December 31, 2018, 2017 and 2016 has been determined to be an unconsolidated entity, and therefore is accounted for under the equity method of accounting based on the Company’s 49% ownership in MSIL. Accounting Estimates The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including certain self-insured risks and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because actual results could differ from those estimates, the Company revises its estimates and assumptions as new information becomes available. Cash and Cash Equivalents The Company’s cash and cash equivalents include actively traded money market funds with short-term investments in marketable securities, primarily U.S. government securities. Cash and cash equivalents are stated at cost, which approximates fair value, due to the highly liquid nature and short-term duration of the underlying securities with original maturities of 90 days or less. Accounts Receivable and Concentration of Credit Risk Revenues are principally generated from the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets. The Company’s largest customers are Ford Motor Company and Volvo, primarily related to the Control Devices and Electronics reportable segments and accounted for the following percentages of consolidated net sales for the years ended December 31, 2018, 2017 and 2016:
|  | 2018 |  | 2017 |  | 2016
Ford Motor Company |  | 12 | % |  | 14 | % |  | 17 | %
Volvo |  | 8 | % |  | 6 | % |  | 6 | %
Accounts receivable are recorded at the invoice price, net of an estimate of allowance for doubtful accounts and other reserves. Allowance for Doubtful Accounts The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. Additionally, the Company reviews historical trends for collectability in determining an estimate for its allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due to the Company could be reduced by a material amount. The Company does not have collateral requirements with its customers. Sales of Accounts Receivable In prior years, the Company’s PST segment sold selected accounts receivable on a full recourse basis to an unrelated financial institution in Brazil. PST accounts for these transactions as sales of accounts receivable. As such, in accordance with ASC 860, “Transfers and Servicing”, the sales of accounts receivable are reflected as a reduction of accounts receivable in the consolidated balance sheets and the loss on sale is recorded within interest expense, net in the consolidated statements of operations while the proceeds received from the sale are included in the cash flows from operating activities in the consolidated statements of cash flows. During 2017, PST sold $2,520 (7,983 Brazilian real (“R$”)) of accounts receivable at a loss of $86 (R$273), which represents the implicit interest on the transaction, and received proceeds of $2,434 (R$7,710). PST did not have any remaining credit exposure at December 31, 2017 related to the receivables sold. During 2018, PST did not sell any of its accounts receivable. Inventories Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or net realizable value. The Company evaluates and adjusts as necessary its excess and obsolescence reserve on a quarterly basis. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. Inventory cost includes material, labor and overhead. Inventories consist of the following:
December 31, |  | 2018 |  | 2017
Raw materials |  | $ | 54,382 |  | $ | 47,588
Work-in-progress |  |  | 4,710 |  |  | 5,806
Finished goods |  |  | 20,186 |  |  | 20,077
Total inventories, net |  | $ | 79,278 |  | $ | 73,471
Inventory valued using the FIFO method was $64,745 and $54,837 at December 31, 2018 and 2017, respectively. Inventory valued using the average cost method was $14,533 and $18,634 at December 31, 2018 and 2017, respectively. Pre-production Costs Related to Long-term Supply Arrangements Engineering, research and development and other design and development costs for products sold on long-term supply arrangements are expensed as incurred unless the Company has a contractual guarantee for reimbursement from the customer which are capitalized as pre-production costs. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company either has title to the assets or has the noncancelable right to use the assets during the term of the supply arrangement are capitalized in property, plant and equipment and amortized to cost of sales over the shorter of the term of the arrangement or over the estimated useful lives of the assets, typically three to five years. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company has a contractual guarantee to a lump sum reimbursement from the customer are capitalized either as a component of prepaid expenses and other current assets or an investment and other long term assets, net within the consolidated balance sheets. Capitalized pre-production costs were $6,875 and $9,260 at December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017, $6,875 and $8,894 were recorded as a component of prepaid expenses and other current assets on the consolidated balance sheets while the remaining amounts were recorded as a component of investments and other long term assets, net. Acquisitions Orlaco On January 31, 2017, Stoneridge B.V., an indirect wholly-owned subsidiary of Stoneridge, Inc., acquired Orlaco. Orlaco designs, manufactures and sells camera-based vision systems, monitors and related products primarily to the heavy off-road machinery, commercial vehicle, lifting crane and warehousing and logistics industries. Stoneridge and Orlaco jointly developed the MirrorEye camera monitor system, which is a system solution to improve the safety and fuel economy for commercial vehicles. The MirrorEye camera monitor system integrates Orlaco’s vision processing technology and Stoneridge’s driver information capabilities as well as the combined software capabilities of both businesses. The acquisition of Orlaco enhances the Stoneridge’s Electronics segment global technical capabilities in vision systems and facilitates entry into new markets. The aggregate consideration for the Orlaco acquisition was €74,939 ($79,675), which included customary estimated adjustments to the purchase price. The Company paid €67,439 ($71,701) in cash. The purchase price was subject to certain customary adjustments set forth in the purchase agreement. The Company is required to pay an additional amount up to €7,500 as contingent consideration (“earn-out consideration”) if certain performance targets are achieved during the first two years. See Note 9 for additional details on the Orlaco contingent consideration. The acquisition date fair value of the total consideration transferred consisted of the following:
Cash |  | $ | 79,675
Fair value of earn-out consideration and other adjustments |  |  | 4,208
Total purchase price |  | $ | 83,883
The following table summarizes the final fair value of the assets acquired and liabilities assumed at the acquisition date (including measurement period adjustments):
At January 31, 2017 |  |  |
Cash |  | $ | 2,165
Accounts receivable |  |  | 7,929
Inventory |  |  | 9,409
Prepaid and other current assets |  |  | 298
Property, plant and equipment |  |  | 6,668
Identifiable intangible assets |  |  | 38,739
Other long-term assets |  |  | 6
Total identifiable assets acquired |  |  | 65,214
Accounts payable |  |  | 3,020
Other current liabilities |  |  | 834
Deferred tax liabilities |  |  | 10,206
Warranty liability |  |  | 899
Total liabilities assumed |  |  | 14,959
Net identifiable assets acquired |  |  | 50,255
Goodwill |  |  | 33,628
Net assets acquired |  | $ | 83,883
Assets acquired and liabilities assumed were recorded at estimated fair values based on management’s estimates, available information, and reasonable and supportable assumptions. Also, the Company utilized a third-party to assist with certain estimates of fair values, including:
| · |  | Fair value estimate for inventory was based on a comparative sales method
| · |  | Fair value estimate for property, plant and equipment was based on appraised values utilizing cost and market approaches
| · |  | Fair values for intangible assets were based on a combination of market and income approaches, including the relief from royalty method
| · |  | Fair value for the earn-out consideration was based on a Monte Carlo simulation analysis utilizing forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the 2017 and 2018 earn-out period as well as a growth rate reduced by the market required rate of return
These fair value measurements are classified within Level 3 of the fair value hierarchy. See Note 10 for details on fair value hierarchy. Goodwill is calculated as the excess of the fair value of consideration transferred over the fair market value of the acquired identifiable assets and assumed liabilities and represents the future economic benefits arising from other assets acquired that could not be separately recognized. The goodwill is not deductible for income tax purposes. Of the $38,739 of acquired identifiable intangible assets, $27,518 was assigned to customer lists with a 15-year useful life; $5,142 was assigned to trademarks with a 20-year useful life; and $6,079 was assigned to technology with a 7-year weighted-average useful life. The Company recognized $1,259 of acquisition related costs in the consolidated statement of operations as a component of selling, general and administrative (“SG&A”) expense for the year ended December 31, 2017. There were no acquisition related costs for the year ended December 31, 2018. The Company’s statement of operations included $1,636 of expense in cost of goods sold (“COGS”) for the year ended December 31, 2017 associated with the step-up of the Orlaco inventory to fair value. The Company’s statement of operations included $369 and $4,853 of expense for the fair value adjustment for earn-out consideration in SG&A expenses for the year ended December 31, 2018 and 2017, respectively. The following unaudited pro forma information reflects the Company’s consolidated results of operations as if the acquisition had taken place on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results.
Year ended December 31 |  | 2017 |  | 2016
Net sales |  | $ | 829,474 |  | $ | 752,864
Net income attributable to Stoneridge, Inc. and subsidiaries |  | $ | 45,283 |  | $ | 8,218
Property, Plant and Equipment Property, plant and equipment are recorded at cost and consist of the following:
December 31, |  | 2018 |  | 2017
Land and land improvements |  | $ | 4,619 |  | $ | 4,863
Buildings and improvements |  |  | 37,234 |  |  | 37,581
Machinery and equipment |  |  | 212,225 |  |  | 192,107
Office furniture and fixtures |  |  | 9,929 |  |  | 10,070
Tooling |  |  | 75,620 |  |  | 75,038
Information technology |  |  | 27,179 |  |  | 27,466
Vehicles |  |  | 872 |  |  | 881
Leasehold improvements |  |  | 2,799 |  |  | 2,841
Construction in progress |  |  | 23,064 |  |  | 24,312
Total property, plant, and equipment |  |  | 393,541 |  |  | 375,159
Less: accumulated depreciation |  |  | (281,328) |  |  | (264,757)
Property, plant and equipment, net |  | $ | 112,213 |  | $ | 110,402
Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $22,786, $21,490 and $19,998, respectively. Depreciable lives within each property classification are as follows:
Buildings and improvements |  |  | 10-40 years
Machinery and equipment |  |  | 3-10 years
Office furniture and fixtures |  |  | 3-10 years
Tooling |  |  | 2-5 years
Information technology |  |  | 3-7 years
Vehicles |  |  | 3-5 years
Leasehold improvements |  |  | shorter of lease term or 3-10 years
Maintenance and repair expenditures that are not considered improvements and do not extend the useful life of the property, plant and equipment are charged to expense as incurred. Expenditures for improvements and major renewals are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the consolidated statements of operations as a component of SG&A expenses. Impairment of Long-Lived or Finite-Lived Assets The Company reviews the carrying value of its long-lived assets and finite-lived intangible assets for impairment when events or circumstances indicate that their carrying value may not be recoverable. Factors the Company considers important that could trigger testing of the related asset groups for an impairment include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses, significant adverse changes in the business climate within a particular business or current expectations that a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. To test for impairment, the estimated undiscounted cash flows expected to be generated from the use and disposal of the asset or asset group is compared to its carrying value. An asset group is established by identifying the lowest level of cash flows generated by the group of assets that are largely independent of cash flows of other assets. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify projected cash flows. If these undiscounted cash flows are less than their respective carrying values, an impairment charge would be recognized to the extent that the carrying values exceed estimated fair values. The estimation of undiscounted cash flows and fair value requires us to make assumptions regarding future operating results over the life of the asset or the life of the primary asset in the asset group. The results of the impairment testing are dependent on these estimates which require judgment. The occurrence of certain events, including changes in economic and competitive conditions, could impact cash flows eventually realized and management’s ability to accurately assess whether an asset is impaired. Goodwill and Other Intangible Assets Goodwill The total purchase price associated with acquisitions is allocated to the acquisition date fair values of identifiable assets acquired and liabilities assumed with the excess purchase price assigned to goodwill. Goodwill was $36,717 and $38,419 at December 31, 2018 and 2017, respectively, all of which relates to the Electronics segment. Goodwill is not amortized, but instead is tested for impairment at least annually, or earlier when events and circumstances indicate that it is more likely than not that such assets have been impaired, by applying a fair value-based test. In conducting our annual impairment assessment testing, we first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. The Company utilizes an income statement approach to estimate the fair value of a reporting unit and a market valuation approach to further support this analysis. The income approach is based on projected debt-free cash flow which is discounted to the present value using discount factors that consider the timing and risk of cash flows. We believe that this approach is appropriate because it provides a fair value estimate based on the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is estimated using internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is the value-weighted average of our estimated cost of equity and of debt (“cost of capital”) derived using both known and estimated customary market metrics. Our weighted average cost of capital is adjusted to reflect a risk factor, if necessary. Other significant assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management’s application of these assumptions to this analysis, we believe that the income statement approach provides a reasonable estimate of the fair value of a reporting unit. The market valuation approach is used to further support our analysis. There was no impairment of goodwill for the years ended December 31, 2018, 2017 or 2016. Goodwill and changes in the carrying amount of goodwill by segment for the years ended December 31, 2018 and 2017 were as follows:
|  | Electronics
Balance at January 1, 2018 |  | $ | 38,419
Currency translation |  |  | (1,702)
Balance at December 31, 2018 |  | $ | 36,717
|  | Electronics
Balance at January 1, 2017 |  | $ | 931
Acquisition of business |  |  | 33,628
Currency translation |  |  | 3,860
Balance at December 31, 2017 |  | $ | 38,419
The Company’s cumulative goodwill impairment loss since inception was $300,083 at December 31, 2018 and 2017, which includes PST’s goodwill impairment in 2014 and goodwill impairment recorded by the Company’s Control Devices segment in 2008 and 2004. Other Intangible Assets Other intangible assets, net at December 31, 2018 and 2017 consisted of the following:
|  | Acquisition |  | Accumulated |  |  |
As of December 31, 2018 |  | cost |  | amortization |  | Net
Customer lists |  | $ | 52,200 |  | $ | (14,549) |  | $ | 37,651
Tradenames |  |  | 20,689 |  |  | (5,884) |  |  | 14,805
Technology |  |  | 15,581 |  |  | (6,005) |  |  | 9,576
Total |  | $ | 88,470 |  | $ | (26,438) |  | $ | 62,032
|  | Acquisition |  | Accumulated |  |  |
As of December 31, 2017 |  | cost |  | amortization |  | Net
Customer lists |  | $ | 57,672 |  | $ | (12,695) |  | $ | 44,977
Tradenames |  |  | 23,546 |  |  | (5,646) |  |  | 17,900
Technology |  |  | 17,443 |  |  | (5,077) |  |  | 12,366
Other |  |  | 41 |  |  | (41) |  |  | -
Total |  | $ | 98,702 |  | $ | (23,459) |  | $ | 75,243
Other intangible assets, net at December 31, 2018 for customer lists, tradenames, and technology include $25,501, $4,939 and $4,566, respectively, related to the Electronics segment and customer lists, tradenames and technology of $12,150, $9,866 and $5,010, respectively, related to the PST segment. The Company recognized $6,406, $6,440 and $3,259 of amortization expense related to intangible assets in 2018, 2017 and 2016, respectively. Amortization expense is included as a component of SG&A on the consolidated statements of operations. Annual amortization expense for intangible assets is estimated to be approximately $6,205 for the years 2019 through 2023. The weighted-average remaining amortization period is approximately 12 years. For the year ended December 31, 2018 the Company recognized $202 of intangible impairment charge related to the Electronics segment customer lists as a result of the European Aftermarket restructuring as noted in Note 13. There were no intangible impairment charges for the year ended December 31, 2017. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following:
As of December 31 |  | 2018 |  | 2017
Compensation related liabilities |  | $ | 18,717 |  | $ | 22,429
Contingent consideration (A) |  |  | 8,602 |  |  | -
Product warranty and recall obligations |  |  | 7,211 |  |  | 6,867
Accrued income taxes |  |  | 1,507 |  |  | 6,897
Other (B) |  |  | 21,843 |  |  | 16,353
Total accrued expenses and other current liabilities |  | $ | 57,880 |  | $ | 52,546
| (A) |  | Accrued contingent consideration includes the Orlaco contingent consideration, as referenced in Note 2 and Note 10, and is included in accrued expenses and other current liabilities for the year ended December 31, 2018 and was included in other long-term liabilities for the year ended December 31, 2017.
| (B) |  | “Other” is comprised of miscellaneous accruals, none of which individually contributed a significant portion of the total.
Income Taxes The Company accounts for income taxes using the liability method. Deferred income taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not to occur. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date. Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized (See Note 6). In making such a determination, the Company considers all available positive and negative evidence, including future release of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. Release of some or all of a valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The Company’s policy is to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected. The Tax Legislation created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries. The Company has made an accounting policy election to reflect GILTI taxes, if any, as a current income tax expense in the period incurred. Currency Translation The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into U.S. dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for the results of operations. Adjustments resulting from translation of financial statements are reflected as a component of accumulated other comprehensive loss in the Company’s consolidated balance sheets. Foreign currency transactions are remeasured into the functional currency using translation rates in effect at the time of the transaction with the resulting adjustments included on the consolidated statements of operations within other expense, net. These foreign currency transaction losses (gains), including the impact of hedging activities, were $(487), $500 and $(268) for the years ended December 31, 2018, 2017 and 2016, respectively. Revenue Recognition and Sales Commitments The Company recognizes revenue when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products and services, which is usually when the parts are shipped or delivered to the customer’s premises. The Company recognizes monitoring service revenues over time, as the services are provided to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Incidental items that are not significant in the context of the contract are recognized as expense. The Company collects certain taxes and fees on behalf of government agencies and remits such collections on a periodic basis. The taxes are collected from customers but are not included in net sales. Estimated returns are based on historical authorized returns. The Company often enters into agreements with its customers at the beginning of a given vehicle’s expected production life. Once such agreements are entered into, it is the Company’s obligation to fulfill the customers’ purchasing requirements for the entire production life of the vehicle. These agreements are subject to potential renegotiation from time to time, which may affect product pricing. See Note 3 for additional disclosure. Shipping and Handling Costs Shipping and handling costs are included in COGS on the consolidated statements of operations. Product Warranty and Recall Reserves Amounts accrued for product warranty and recall claims are established based on the Company’s best estimate of the amounts necessary to settle existing and future claims on products sold as of the balance sheet dates. These accruals are based on several factors including past experience, production changes, industry developments and various other considerations including insurance coverage. The Company can provide no assurances that it will not experience material claims or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers. The current portion of the product warranty and recall reserve is included as a component of accrued expenses and other current liabilities on the consolidated balance sheets. Product warranty and recall includes $3,283 and $3,112 of a long-term liability at December 31, 2018 and 2017, respectively, which is included as a component of other long-term liabilities on the consolidated balance sheets. The following provides a reconciliation of changes in the product warranty and recall reserve:
Year ended December 31, |  | 2018 |  | 2017
Product warranty and recall at beginning of period |  | $ | 9,979 |  | $ | 9,344
Accruals for warranties established during period |  |  | 6,217 |  |  | 4,933
Assumed warranty liability related to Orlaco |  |  | - |  |  | 899
Aggregate changes in pre-existing liabilities due to claim developments |  |  | 646 |  |  | 4,899
Settlements made during the period |  |  | (5,831) |  |  | (10,407)
Foreign currency translation |  |  | (517) |  |  | 311
Product warranty and recall at end of period |  | $ | 10,494 |  | $ | 9,979
Design and Development Costs Expenses associated with the development of new products, and changes to existing products are charged to expense as incurred, and are included in the Company’s consolidated statements of operations as a separate component of costs and expenses. These product development costs amounted to $51,074, $48,877 and $40,212 for the years ended December 31, 2018, 2017 and 2016, respectively, or 5.9%, 5.9% and 5.8% of net sales for these respective periods. Research and Development Activities The Company enters into research and development contracts with certain customers, which generally provide for reimbursement of costs. The Company incurred and was reimbursed for contracted research and development costs of $16,540, $14,946 and $12,764 for the years ended December 31, 2018, 2017 and 2016, respectively. Share-Based Compensation At December 31, 2018, the Company had two types of share-based compensation plans: (1) Long-Term Incentive Plan for employees and (2) the Amended Directors’ Restricted Shares Plan, for non-employee directors. The Long-Term Incentive Plan is made up of the Long-Term Incentive Plan which expired on June 30, 2007, the Amended and Restated Long-Term Incentive Plan, as amended, which expired on April 24, 2016 and the 2016 Long-Term Incentive Plan that was approved by shareholders on May 10, 2016, and expires on May 10, 2026. Total compensation expense recognized as a component of SG&A expense on the consolidated statements of operations for share-based compensation arrangements was $5,632, including the forfeiture of certain grants associated with employee resignations, $7,265, related to higher attainment of performance-based awards and accelerated expense associated with the retirement of eligible employees, and $6,134, including $545 from the accelerated vesting in connection with the retirement of the Company’s former President and Chief Executive Officer, for the years ended December 31, 2018, 2017 and 2016, respectively. There was no share-based compensation expense capitalized in inventory during 2018, 2017 or 2016. Financial Instruments and Derivative Financial Instruments Financial instruments, including derivative financial instruments, held by the Company include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and foreign currency forward contracts. The carrying value of cash and cash equivalents, accounts receivable and accounts payable is considered to be representative of fair value because of the short maturity of these instruments. See Note 10 for fair value disclosures of the Company’s financial instruments. Common Shares Held in Treasury The Company accounts for Common Shares held in treasury under the cost method (applied on a FIFO basis) and includes such shares as a reduction of total shareholders’ equity. Earnings Per Share Basic earnings per share was computed by dividing net income attributable to Stoneridge Inc. by the weighted-average number of Common Shares outstanding for each respective period. Diluted earnings per share was calculated by dividing net income attributable to Stoneridge, Inc. by the weighted-average of all potentially dilutive Common Shares that were outstanding during the periods presented. Actual weighted-average Common Shares outstanding used in calculating basic and diluted net income per share were as follows:
Year ended December 31, |  | 2018 |  | 2017 |  | 2016
Basic weighted-average Common Shares outstanding |  | 28,402,227 |  | 28,082,114 |  | 27,763,990
Effect of dilutive shares |  | 677,599 |  | 689,531 |  | 544,932
Diluted weighted-average Common Shares outstanding |  | 29,079,826 |  | 28,771,645 |  | 28,308,922
There were no performance-based restricted Common Shares outstanding at December 31, 2018, 2017 or 2016. There were also 628,220, 766,538 and 843,140 performance-based right to receive Common Shares outstanding at December 31, 2018, 2017 and 2016. These performance-based restricted and right to receive Common Shares are included in the computation of diluted earnings per share based on the number of Common Shares that would be issuable if the end of the year were the end of the contingency period. Deferred Financing Costs, net Deferred financing costs are amortized over the life of the related financial instrument using the straight-line method, which approximates the effective interest method. Deferred finance cost amortization and debt discount accretion for the years ended December 31, 2018, 2017 and 2016 was $326, $324 and $355, respectively, and is included as a component of interest expense, net in the consolidated statements of operations. The Company has elected to continue to present deferred financing costs related to the Credit Facility within long-term assets in the Company’s consolidated balance sheets. Deferred financing costs, net, were $882 and $1,208, as of December 31, 2018 and 2017, respectively. Changes in Accumulated Other Comprehensive Loss by Component Changes in accumulated other comprehensive loss for the years ended December 31, 2018 and 2017 were as follows:
|  | Foreign |  | Unrealized |  |  |
|  | currency |  | gain (loss) |  |  |
|  | translation |  | on derivatives |  | Total
Balance at January 1, 2018 |  | $ | (69,417) |  | $ | (143) |  | $ | (69,560)
Other comprehensive (loss) income before reclassifications |  |  | (16,627) |  |  | 1,448 |  |  | (15,179)
Amounts reclassified from accumulated other comprehensive loss |  |  | - |  |  | (1,013) |  |  | (1,013)
Net other comprehensive (loss) income, net of tax |  |  | (16,627) |  |  | 435 |  |  | (16,192)
Balance at December 31, 2018 |  | $ | (86,044) |  | $ | 292 |  | $ | (85,752)
Balance at January 1, 2017 |  | $ | (67,895) |  | $ | (18) |  | $ | (67,913)
Other comprehensive income before reclassifications |  |  | 15,473 |  |  | 509 |  |  | 15,982
Amounts reclassified from accumulated other comprehensive loss |  |  | - |  |  | (634) |  |  | (634)
Net other comprehensive income (loss), net of tax |  |  | 15,473 |  |  | (125) |  |  | 15,348
Reclassification of foreign currency translation associated with noncontrolling interest acquired |  |  | (16,995) |  |  | - |  |  | -
Balance at December 31, 2017 |  | $ | (69,417) |  | $ | (143) |  | $ | (69,560)
Reclassifications Certain prior period amounts have been reclassified to conform to their 2018 presentation in the consolidated financial statements. Recently Adopted Accounting Standards In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-05, “Income Taxes – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The standard provides for a provisional one-year measurement period for entities to finalize their accounting for certain tax effects of the Tax Legislation. The Company adopted this standard as of January 1, 2018, which did not have a material impact on its consolidated financial statements. The Company has completed its accounting for SAB 118 as of December 31, 2018. In January 2017, the FASB issued ASU 2017‑01, “Clarifying the Definition of a Business (Topic 805)”. It revises the definition of a business and provides a framework to evaluate when an input and a substantive process are present in an acquisition to be considered a business. This guidance was effective for annual periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018, which did not have a material impact on its consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory (Topic 740)”. This guidance requires that the tax effects of all intra-entity sales of assets other than inventory be recognized in the period in which the transaction occurs. The Company adopted this standard on January 1, 2018, which did not have a material impact on its consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230)”, which provides guidance on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows in order to reduce diversity in practice. This ASU was effective for interim and annual periods beginning after December 15, 2017. The Company adopted this standard as of January 1, 2018, which did not have a material impact on its consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, “ Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The standard requires equity investments and other ownership interests in unconsolidated entities (other than those accounted for using the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The Company adopted this standard as of January 1, 2018, which did not have a material impact on its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” and related amendments, which is the new comprehensive revenue recognition standard (collectively known as Accounting Standard Codification (“ASC”) 606) that has superseded existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. The Company adopted this standard on January 1, 2018 using the modified retrospective transition method. Under the modified retrospective method, the Company would have recognized the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application; however, the Company did not have any material adjustments as of the date of the adoption. The Company has not experienced a material impact on its results of operations from the adoption of ASC 606; however, the Company has expanded its disclosures consistent with the requirements of the new standard and the Company will continue to evaluate new contracts to apply the framework of ASC 606. In particular, the Company will evaluate new contracts with customers analyzing the impact, if any, on revenue from the sale of production parts, particularly in regards to material rights, variable consideration and the impact of termination clauses on the timing of revenue recognition. The majority of our revenue continues to be recognized when products are shipped from our manufacturing facilities. The Company has not changed how it accounts for reimbursable pre-production costs, currently accounted for as a reduction of costs incurred. Refer to Note 3 for the expanded revenue disclosures. Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2018 In January 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the enactment of Tax Cuts and Jobs Act (Tax Legislation”) related to items in accumulated other comprehensive income (“AOCI”) that the FASB refers to as having been stranded in AOCI. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for periods for which financial statements have not yet been issued or made available for issuance, including the period the Tax Legislation was enacted. The Company will adopt this standard as of January 1, 2019, which is not expected to have a material impact on its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments”, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019, and early adoption is permitted for annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of its pending adoption of ASU 2016-13 on the consolidated financial statements. The Company will adopt this standard as of January 1, 2020 and are still evaluating the impact on its consolidated financial statements. In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842)”, which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will adopt this standard as of January 1, 2019 using the modified retrospective approach and will elect the transition option to use the effective date January 1, 2019, as the date of initial application. The Company will not adjust its comparative period financial statements for effects of the ASU 2016-02, or make the new required lease disclosures for periods before the effective date. The Company will recognize its cumulative effect transition adjustment as of the effective date. In addition, the Company will elect the package of practical expedients permitted under the transition guidance within the new standard. The impact of adoption will result in the recognition of right of use assets estimated in the range of $15,600 to $21,200, with corresponding lease liabilities of the same amount. The standard will not have a significant impact on the Company’s consolidated results of operations and cash flows.

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